1

BUILDING LOCAL CREDIT MARKETS

2

Vehicles for Local Credit

Banks Municipal Bonds On-Lending External Credits Environmental Funds

OBJECTIVE: Build a Consistent System of Credit

3

Dangers of Fragmentation Brazil—30 years of on-lending; no

market Indonesia—52% default rate on

water loans Municipal Bank Monopoly? Tax Exemption only for Municipal

Bonds?

OBJECTIVE: Level Policy Field

4

Goals for Maturing Market Identify Credit Risk Reduce Credit Risk Tap Long-Term Savings for Long-

Term Credit Provide Technical Support for

Local Financing

5

Identifying Risk

Credit Ratings Their Special Role in Local

Borrowing for Developing Countries

Disclosure before Credit Rating

6

Reducing Credit Risk (1)

Building Precedents for Repayment Indonesia Kenya

Lockbox Approaches to Revenues Ahmedabad Bond Municipal Utilities Role of Trustee

7

Reducing Risk (2)

Collateral China—Land Other Assets

Intercepts & Offsets Tamil Nadu v. Brazil

8

Tapping Long-Term Savings Insurance Companies

The ‘prudential investment’ test Pension Funds

Legal Restrictions (e.g. Poland) Paradox of US Tax Exemption

Secondary Market Securitizing Local Loans? Re-selling Municipal Bonds?

9

Banks or Bonds?

Partnership Banking with Technical Support

Bonds—Unbundling the Partnership

10

Blending Grants & Subsidies Blockage of Credit Created by

Poor Design Initial E. European Environmental

Funds Revolving Funds

Way to Introduce Subsidies to Market-Based Credit

11

Blended Credit Systems

China Full Tariffs for Wastewater

Treatment Plants, plus Asset Collateral

Bank Lending + Enterprise Bonds South Africa

INCA as Specialized Intermediary Czech Republic

Banks and Bonds